EU membership hasn’t hindered the success of UK practices in selling their skills across the globe. Let’s hope Brexit doesn’t either
You can say one thing about Brexit, it’s brought back nostalgia with a vengeance. Endless misty-eyed pub chats about how the UK, freed of Europe’s yoke, might reclaim some of its imperial glory – a future perhaps where we again see products bearing the stamp ‘Made in Britain’ ubiquitous around the globe.
Oh to be British in 1872, when the UK claimed 46% of all world exports of manufactured goods, not the miserable 3% or so we see today.
Such romantic notions may seem harmless, but they create an unhelpful slant that hinders sensible debate about Britain’s trading place in the world. It’s a slant that sees Dover or cranes appear as the default backdrop to any news reports on international trade.
Yes, it would be nice to reclaim some of our former manufacturing prowess, but a slice limited to high-end goods would do just fine. A lot of trade in merchandise is in low-cost goods, cheap because the makers pay low wages.
Britain’s power in global trade today is firmly rooted in services. In this its exports are second only to the USA’s. On the basis of doing more of what you’re good at, services rather than goods should be hogging attention in the trade debate around Brexit, publicly and behind closed doors.
Chart 1 shows just how important services are to the UK’s trade balance, and have been for many years, in particular the past 20 years as cheaper manufactured goods have flowed more freely from low-cost labour markets in Asia.
Within this story of the services that Britain sells abroad, architecture is a blossoming success, along with other construction-related services.
Chart 2 shows just how much ground architecture has gained in the international market in recent years. And in Chart 3 we see where this work is being picked up.
One thing is clear: being in Europe has not held back UK architectural expertise from spreading across the globe. Most overseas earnings come from outside Europe. This shouldn’t be a surprise given that growth in construction activity is far greater in the developing world than the developed, so export opportunities will flow more readily there.
Were we to look at UK exports from the broader technical and other business services sector (which includes construction-related activities as a large element) the proportion of exports to Europe is larger than for architecture on its own, showing commercial interaction in services within Europe is strong. But two thirds of work is still sold to countries outside the EU.
Put bluntly, selling brainpower not stuff seems to be the big winner for the UK. And the UK seems pretty unrestrained in where it sells its brainpower.
Without going into the complexities of international trade and the various forms it takes, there is a real prize being won by the wider construction sector based in the UK, trading professional services such as engineering and architecture. One driver of expansion is likely to be information technology which allows these services to be traded much more easily. They can be delivered pretty much to anywhere from anywhere. The critical part seems to be in assembling, connecting and coordinating the brainpower and design talent.
Go to any forecast of international construction and you’ll see far greater expansion in the developing than the developed nations. Growth in a market as mature as Europe will be limited.
A quick read of this might lead to the view that there is a fantastic opportunity ahead for the UK, freed from EU shackles, to negotiate tailor-made trade deals with emerging nations. Yet despite these shackles, if they exist, UK exports of construction-related professional services have taken off in recent years.
If being in the EU has not been a hindrance, has it been a benefit when it comes to the UK expanding trade in services? If so, will leaving create issues and how might these be mitigated?
That is a thesis in itself, but there are a few things worth considering that might shed some light. Let’s start with how UK architects have changed in recent years and how this might or might not have influenced exports. Two things spring to mind: the businesses have become much larger and more international in recent years.
What is the mix of nationalities within the sector? It’s not easy to get accurate data, but we can get pretty firm clues.
Figures from the third quarter Labour Force Survey of 2016, kindly permitted by UK Data Archive, show the spread of non-UK-born people within construction professions in the UK. These suggest that 27% of architects were born outside the UK, with 17% from the EU and 10% elsewhere. The sample size is not great, but it provides a reasonable order of scale.
Looking at the people employed rather than at professions, we can widen the sample to include architectural firms and firms in related engineering and technical activities. This slice of the data gives us a clue to the age profile of those born outside the UK.
Chart 4 shows quite clearly a heavy weighting towards the younger age groups. This tells us that a large group among the up and coming youth within architectural and construction related firms is from abroad. Any loss to this contingent will hit firms hard over the years ahead.
It is important to consider what these foreign-born professionals add to the mix that UK-born professionals cannot. Do they add greater cultural understanding that supports overseas trade? Do they make the UK appear more ‘international’ and so more acceptable abroad? Do these incomers represent the cream of international talent?
If the answers to these questions turn out to be yes or even maybe, the industry faces a stiff challenge if it is to remain as competitive in the global market as it has been. How can it maintain the influx of foreign nationals in the face of a decision that was largely prompted by a desire to restrict migration?
In this light, the RIBA Brexit survey finding that 40% of UK-based non-British EU nationals are now considering leaving the country is a big concern economically, leaving aside morals and emotion.
While the mix of employees has changed, so has the structure of the businesses working in architecture. We looked at this last October and one big shift was the growth in the number of bigger firms. Not only are firms bigger, there are more multi-disciplinary firms and more multi-national firms.
This provides a far stronger platform for expansion abroad. Such firms can exploit scale and a stronger track record. They can tap into a wider range of local and international contacts and into connections with other disciplines within the family of services that cover the development of the built environment. They are also more familiar with and able to engage in a wider range of business relationships – entering joint ventures for example. This makes them more attractive in many international markets where ‘skin in the game’ is seen as an incentive.
The growth of UK overseas trade in architecture and the growth in the scale of businesses do not seem unrelated.
But do big international firms locate in the UK for a reason? Is it that the UK has been seen as an attractive place for international talent to congregate? The answer is probably yes.
Will this continue? Leaving the EU and the single market has profound implications for the emerging international strength of UK-based architectural firms, without even considering the potential impact on the UK home market or on access to the EU market – or the influence it might or might not have in setting strong international standards,.
Britain is a great trading nation, but that trade is in services. Its influence in the design and provision of the international built environment has been growing. The facts suggest the UK’s ability to spread its wings and grab opportunities outside the EU in this critical sector have not been limited by its EU membership.
The worry is whether the opportunities will be limited by its non-membership. Leaving the EU need not be a disaster to international trade in built environment-related services, but it might create some unwelcome effects. The industry must ensure the focus on trade among policy-makers and the public is not skewed towards ‘Made in Britain’ products.
‘Designed and delivered by UK-based talent’ may not be as snappy, but it is almost certainly worth more when it comes to the nation’s balance of payments.